Morning Report - retail sales

Vital Statistics:

	Last	Change	Percent
S&P Futures	1627.3	-2.3	-0.14%
Eurostoxx Index	2776.9	-8.4	-0.30%
Oil (WTI)	95.43	-0.6	-0.64%
LIBOR	0.275	0.000	0.00%
US Dollar Index (DXY)	83.31	0.165	0.20%
10 Year Govt Bond Yield	1.94%	0.04%
Current Coupon Ginnie Mae TBA	104.8	-0.4
Current Coupon Fannie Mae TBA	102.8	-0.3
RPX Composite Real Estate Index	196.3	0.5
BankRate 30 Year Fixed Rate Mortgage	3.58

Markets are slightly lower after vaulting to new heights last week. Earnings season is largely over; the only ones left are the retailers who start reporting this week. We will hear from Wal Mart and Kohls later this week. Bonds and MBS continue to sell off - the 30 year fixed rate mortgage closed the week at 3.58% after bottoming at 3.4% a week and a half ago.

Does the back up in bond yields mean the refi boom is over? Perhaps. At any rate, since we have been in this range of interest rates for so long, the people who have the ability to refinance already have. This is called prepayment burnout. Now, it will take home price appreciation to drive refinances. That said, there is talk of a HARP 3.0, which would allow late 2009 and 2010 vintage underwater mortgages to refinance, and there is talk that the government may allow people who have already refinanced under HARP to do so again.  New government initiatives may help keep the refi boom alive for a little bit longer.

Retail sales increased .1% in April, higher than the -.3% estimate. The movement of the Easter holiday played some role in the increase. Ex autos and gasoline, the increase was .6%. Gasoline is usually stripped out, because simple price changes can move the index. Joseph H Banks (JOSB) missed earnings estimates this morning. It is an old saw that in weak economic times, the only apparel that is purchased is children's clothing. As the economy improves, women's apparel starts to pick up, and when the economy really starts heating up, men's suits start being purchased. We'll get a read on women's apparel when Nordstrom reports on Thursday. Bonds sold off on the retail sales number, although equities didn't really react.

I said it on Friday and I'll say it again. This Obama / IRS thing could be market negative in a lot of ways - first, if there is something there, it will inevitably cause marginal foreign investment money to flee the dollar, which is equity negative. Plus it will make the debt ceiling negotiations all that more acrimonious. With the S&P 500 at record highs, it is worth bearing this in mind. You could also see a serious snap-back rally in the bond market.